"In business terms, we expect that the impact of the pandemic in 2021 will be limited for Munich Re. On top of the anticipated COVID-19 losses, there was an unusual cold snap in the United States early this year. We are nevertheless on track to meet our annual target of EUR2.8bn thanks to robust operating earnings. The April renewals confirmed that the market environment in reinsurance continues to be favorable, and ERGO's strong results help boost the Group's profit," Group's CFO Christoph JURECKA stated.
The operating result increased y-o-y to EUR 798 million (397 million), while the other non-operating result amounted to -EUR 12 million (-11 million). The currency result totaled -EUR 23 million (144 million) and the effective tax rate was 16.3% (53.5%). Gross premiums written increased by 1.9% y-o-y to EUR 14,551m (14,284m).
Equity was slightly lower at the reporting date (EUR 29,392 million) than at the start of the year (EUR 29,994 million). The solvency ratio was approx. 217% (208% as at 31 December 2020), which is at the upper end of the optimum range (175-220%).
In Q1 2021, return on equity (RoE) amounted to 10.4% (3.9%).
Reinsurance: Result of EUR 410 million
The reinsurance field of business contributed EUR 410 million (149 million) to the consolidated result in Q1. The operating result rose to EUR 558 million (298 million) and gross premiums written totaled EUR 9,389 million (9,235 million).
Life and health reinsurance business generated a profit of EUR 52 million (8 million) in Q1. Premium income amounted to EUR 3,058 million (3,079 million). The quarterly result was affected by COVID-19-related losses of around EUR 167 million. The technical result, including the result from reinsurance treaties with non-significant risk transfer, was EUR 51 million (56 million).
In Q1, property-casualty reinsurance business contributed EUR 358 million (141 million) to the result. Premium volume rose to EUR 6,330 million (6,156 million), despite counter-effects from currency translation. The combined ratio was 98.9% (106.0%) of net earned premium.
Major losses of over EUR 10 million each totaled EUR 892 million (1,181 million). These figures include gains and losses from the settlement of major losses from previous years. Major-loss expenditure corresponds to 15.5% (21.1%) of net earned premiums, and was thus above the long-term average expected value of 12%. Man-made major losses declined to EUR 247 million (973 million), including COVID-19 losses of around EUR 100 million. Conversely, major losses from natural catastrophes rose to EUR 646 million (208 million), attributable primarily to losses of some EUR 450 million resulting from the US cold snap in Texas.
In Q1, loss reserves of EUR 230 million (224 million) were released for basic losses from prior years, which corresponds to 4.0% (4.0%) of net earned premiums. Munich Re continually seeks to set the amount of provisions for newly emerging claims at the very top end of the estimation range, so that profits from the release of a portion of these reserves are possible at a later stage.
In the reinsurance renewals as at 1 April 2021, Munich Re was able to increase the volume of business written to EUR 2.3bn (+17.1%). It was possible to tap into growth opportunities, especially with global clients and in Asia - particularly in Japan and India. By contrast, Munich Re once again selectively discontinued business that no longer met risk/return expectations.
Prices were up overall in the sectional markets, with increases varying in connection with the specific claims experience and situation in each individual market. Prices for reinsurance cover rose considerably in some places, including Japan. By contrast, prices rose only slightly in regions and classes of business with low claims experience, such as Europe. All in all, prices for the Munich Re portfolio increased by 2.4%. This figure is, as always, risk-adjusted. In other words, price increases are offset if the underlying risk has increased and loss expectations are consequently elevated. Similarly, changes are offset by the composition of different classes of business in the portfolio so as to make valid comparisons possible.
Munich Re anticipates that the market environment will improve y-o-y in the next renewal round in July, as was the case with previous renewals.
ERGO: Result of EUR 178 million
ERGO posted a profit of EUR 178 million (72 million) for Munich Re in Q1.
ERGO Life and Health Germany reported an improved result of EUR 94 million (5 million), due to very good operational performance and an improved investment result. ERGO Property-casualty Germany increased its profit to EUR 24 million (21 million), buoyed by strong growth in premium income. Thanks to ongoing good operational performance, ERGO International boosted its result to EUR 60 million (46 million). ERGO's operating result totaled EUR 240 million (99 million).
The combined ratios remain at a very good level, with a slight increase to 94.2% (93.4%) in Property-casualty Germany. Higher claims expenditure from man-made major losses was mitigated by a lower claims frequency associated with COVID-19, among other things, and by lower costs. The combined ratio for ERGO International improved to 93.8% (95.2%).
Overall premium income across all lines rose slightly in Q1 to EUR 5,362 million (5,253 million); gross premiums written increased to EUR 5,163 million (5,050 million).
Investments: Investment result of EUR 1,691 million
The Group's investment result (excluding insurance-related investments) decreased to EUR 1,691 million (1,920 million) in Q1. Regular income from investments fell slightly to EUR 1,429 million (1,544 million). The balance of gains and losses on disposals excluding derivatives increased to EUR 983 million (377 million). The net balance of derivatives amounted to -EUR 368 million (1,600 million). The very good net balance of derivatives in Q1 2020 was attributable to hedging of the Group's interest-bearing investments and equities, which gained significantly in value due to developments in the capital markets during Q1 2020. It was thus possible to almost entirely compensate for impairment losses and losses on the disposal of equities. As a result, the balance from impairment losses and reversals of impairment losses changed considerably to -EUR 171 million (-1,459 million).
Overall, the Q1 investment result represents a return of 2.7% on the average market value of the portfolio. The running yield was 2.3% and the yield on reinvestment was 1.5%. By means of acquisitions in primary insurance and reinsurance - and aided by the positive market development - Munich Re increased its equity-backing ratio, including equity derivatives, to 6.9% as at 31 March 2021 (6.0% as at 31 December 2020).
The investment portfolio (excluding insurance-related investments) as at 31 March 2021 decreased slightly compared with the 2020 year-end figure, with the carrying amount falling slightly to EUR 231,565 million (232,950 million); the market values amounted to EUR 248,707 million (252,789 million).
The Group's asset manager is MEAG. As at 31 March 2021 - in addition to managing the Group's own assets - MEAG managed third-party investments totaling EUR 64.9 billion (69.6 billion).
Outlook for 2021: Annual target unchanged at EUR 2.8 billion
Munich Re anticipates advantageous business prospects in reinsurance in 2021. This is evident in the projected gross written premium in this field of business, which has been adjusted upwards from EUR 37 billion to EUR 39 billion and, in turn, raises the forecast for the Munich Re Group to EUR 57 billion. The other targets communicated for 2021 in Munich Re's Group Annual Report 2020 remain unchanged. Munich Re is aiming for a consolidated profit of EUR 2.8 billion for the 2021 financial year.
All forecasts and targets face considerable uncertainty owing to fragile macroeconomic developments, volatile capital markets and the unclear future of the pandemic. As always, the projections are subject to major losses being within normal bounds, and to the income statement not being impacted by severe fluctuations in the currency or capital markets, significant changes in the tax environment, or other one-off effects.